Despite Lacking Profits Chongqing Genrix Biopharmaceutical (SHSE:688443) Seems To Be On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Chongqing Genrix Biopharmaceutical Co., Ltd. (SHSE:688443) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Chongqing Genrix Biopharmaceutical

What Is Chongqing Genrix Biopharmaceutical's Debt?

As you can see below, Chongqing Genrix Biopharmaceutical had CN¥609.1m of debt at March 2024, down from CN¥808.9m a year prior. However, its balance sheet shows it holds CN¥2.76b in cash, so it actually has CN¥2.15b net cash.

How Strong Is Chongqing Genrix Biopharmaceutical's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Chongqing Genrix Biopharmaceutical had liabilities of CN¥120.1m due within 12 months and liabilities of CN¥672.6m due beyond that. On the other hand, it had cash of CN¥2.76b and CN¥3.14m worth of receivables due within a year. So it actually has CN¥1.97b more liquid assets than total liabilities.

This surplus suggests that Chongqing Genrix Biopharmaceutical is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Chongqing Genrix Biopharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Chongqing Genrix Biopharmaceutical's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Chongqing Genrix Biopharmaceutical wasn't profitable at an EBIT level, but managed to grow its revenue by 96%, to CN¥1.1m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Chongqing Genrix Biopharmaceutical?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Chongqing Genrix Biopharmaceutical had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CN¥484m and booked a CN¥764m accounting loss. But the saving grace is the CN¥2.15b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Chongqing Genrix Biopharmaceutical may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Chongqing Genrix Biopharmaceutical (1 doesn't sit too well with us!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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